M&A in the broker space continues to thrive. Even though the number of global M&A deals declined to 620 in 2020, following a record high of 671 in 2019, the aggregate deal value in 2020 was actually 39% higher than in 2019 at $21.6 billion, according to Deloitte.
Perhaps of most interest is the merger of Aon and Willis Towers Watson, approved in 2020 and due to be completed this year. At the same time, the role of private equity in the space has grown significantly, with the share of PE-backed M&A transactions in the US increasing from around ¼ a decade ago to about 70% today, according to Moody’s.
Solving key M&A challenges
However, making a success of a merger or acquisition is not straightforward. It depends upon many factors, including technology, crucial to the long-term success of an acquisition because it can:
- Integrate the different systems of the merging companies
- Create opportunities for additional synergies beyond those identified pre-acquisition
- Ensure IT systems continue to meet regulatory compliance requirements (particularly important if the acquisition has broadened geographic reach)
- Improve productivity and operational performance
- Address pain points in the combined business
For example, SRG is a fast-growing speciality risk broker named one of Insurance Times’ Top 50 Brokers. Currently the company is consolidating several systems from recent acquisitions and has several more acquisitions in the pipeline. Migrating all systems onto a single broking platform is a priority for Keith Bucknall, SRG’s IT and Projects Director.
“The more companies we acquire, the better it is to migrate them onto a single flexible, scalable platform so you can achieve that integration and those cost efficiencies right away while preparing for future growth,” Bucknall says. “That’s what Novidea offers, and that’s why we use it.”
The right technology enables ‘painless’ M&A
For Yariv Kuperman, CEO of Howden, the benefits of using the right technology are clear and measurable:
“No longer is technology a barrier for growth. It is an enabler. We can now move much faster than ever before and act on new opportunities and trends in the market. With Novidea we grew painlessly via M&A. Integration and onboarding of a new agency took a record three months instead of the average 12.”
Here are six ways the right technology helps brokers achieve mid- to long-term acquisition success:
- Set objectives for acquisition integration and plan to achieve them
Your strategic reasons for making the acquisition, along with synergies that underpinned the financial value of the deal, should be framed as specific integration objectives. Make sure everyone knows what they are and regularly issue key performance indicators that show progress. Use input from your top team to create a credible integration plan, focusing initially on the first 100 days.
- Use the power of technology as an enabler for integration
Some of the objectives you set yourself can be complicated to deliver and beyond the capability of your current technology. Consider a move to a modern ‘cloud-based’ broking platform that integrates front and back-office processes, enables data to be leveraged across all businesses, and is based on an architecture that grows with your business.
- Move to a data-driven business model
The key to delivering most of these actions is moving the combined business to a data-driven business model, where decisions are based on analysis rather than intuition. Data is one of the most important assets for the new organization but is often the forgotten element in an acquisition and consigned to a ‘plumbing problem’ for the technology team to fix.
In fact, effective data management combined with real-time actionable intelligence is central to making the integration a success. Using technology solutions that let you create a single data repository for all business information linked to powerful and customizable analytic tools is a key differentiator used in successful acquisitions.
- How much time do you spend on your best customers vs. those who are high maintenance?
- Which clients are profitable, breakeven, or unprofitable for the business?
- What is the total income a client brings to the firm vs. the number of staff hours and resources the client requires on ongoing basis?
- Use intelligent selling to maximize revenue
With so many integration challenges, it’s easy to forget about the day-to-day business of looking after customers and revenue can suffer. The following metrics are a good example of what to keep track of during your integration:
- Renewal retention tracked by customer, date, and value
- Pipeline split by prospect, date, and value
- Commissions and fees due by customer, date, and value
- Combined forecast by date and value
- Customer profitability
- Hit Ratio by Line of Business and Customer Segment
This allows you to create a prioritized list of customers that need to be managed so renewals aren’t missed and quotations are progressed into policies.
Use forecasting dashboards to monitor revenue-specific KPIs like these to make sure acquisition synergies are on-track. Add to existing revenue by organizing and ruthlessly executing up-sell and cross-sell campaigns.
- Don’t let costs get out of control
Getting a firm handle on where costs are being incurred – sales, back office, customer service – is important. In a similar way to managing revenue, set and monitor KPIs.
Tools that track the actual time spent working on different tasks, and automatically calculate the associated costs, can help identify inefficiencies or areas where time and cost is being wasted on low-value activities that can be automated or removed. Even simple tasks – emails sent, calls made, claims started – can add up to a sizeable impact on the bottom line.
And use benchmarking to see how the newly-acquired business is performing by measuring it against the other businesses in your portfolio to help understand what good looks like and how to achieve it.
- Maintain customer service excellence
Finally, don’t forget about the customer. Back- and front-office teams need to keep a firm handle on customer tasks. While reminders and task managers might sound basic, they can make the difference between meeting or missing a commitment.
Management can review metrics such as Customer SLA Status and the number of open service requests to make sure there are no recurring hotspots that suggest a bigger problem.
Letting clients self-serve basic functions, e.g. quote and bind, claims notifications, policy retrieval etc., will help them take the pressure off your team. This leaves your staff with more time to focus on the higher value activities that contribute to the top- and bottom-line.
If you are a broker on the M&A trail, drop Jamie McDonnell a line to discover how Novidea’s ‘born-in-the-cloud’ broker platform can support your success and help you to accelerate a seamless integration.